September 12, 2016

When does groupthink really become more of a dangerous group-no-think?

Sir, Andrew Hill, discussing the works of Jennifer Chatman from UC Berkeley’s Haas School of Business writes: “Cohesion and co-operation may look like virtues, but they could be symptoms of groupthink. The greater the collective will of the team — and the higher the stakes — the less likely people are to dissent, because, in Prof Chatman’s words, ‘speaking up about risks is like saying you have no confidence in the group’.” “When the stakes are high, dissent is a sign of success”, September 12

So if “dissent and friction are unlikely signals of success” Prof Chatman says: “Maybe we need to live with a little more discomfort and difference to get these valuable outcomes.”

And again I must ask myself; might that be the reason for that no one in the bank regulation community spoke up against that strange theorem that held that what was perceived as risky was riskier to the banking system than what was ex ante perceived as safe? That theorem is in fact so loony that we perhaps should not even speak about groupthink, but more in terms of group-no-think.

And truly dangerous that was, since from that theorem they deducted their risk-weighted capital requirements; which then completely distorted the allocation of bank credit to the real economy.

So what “little more discomfort” should we apply for instance to the Basel Committee? Could a town-hall meeting where doubters could ask their questions suffice? I am not sure, I have spent more than a decade asking the regulators this, and they just don’t answer; worse nobody finds anything strange with their silence.

Or is it that what I confront is not a group but a massive gathering of confused minds; that among other includes you Sir and perhaps all FT journalists; I mean something like that which was the case when the earth was believed flat?

@PerKurowski ©